Nov 02 - 08, 2009

Analysts have been warning the policy planners about emerging energy shortfall but the habit of sweeping the issues under the carpet has started yielding its adverse impact. Over the last couple of years, the issue has further aggravated because of gross mismanagement and inability to take timely decisions. The current spell of electricity load shedding and load management of gas can only be termed 'manmade crises'.

The biggest regret is that policy planners and decision makers either do not understand the gravity of situation or least bothered. Both the printed and electronic media have not only been talking about the impediments but also suggesting solutions but all went in vain. The apathy is likely to result in the collapse of the entire supply infrastructure.

As has been stated repeatedly hikes in electricity and gas tariffs just cannot improve financial health of the entities suffering from corruption, mismanagement, and blatant theft of electricity and gas.

The transmission and distribution (T&D losses of KESC and PEPCO are as high as 40% and UFG of SNGPL and SSGC stands at 10% and 7.5% respectively. Experts are of the opinion that bulk of T&D losses of electricity distribution companies and UFG of gas distribution companies comprise of theft.

According to power sector experts, one percent reduction in T&D losses can increase revenue of electricity distribution companies by two billion rupees. Instead of making efforts to curb power theft, distribution companies have been demanding increase in tariffs. It is on record that tariff hike only proliferate power thefts. Sector experts say that T&D losses of PEPCO and KESC should be reduced to 10% and 5% respectively by converting Kundas into legal connections and ensuring that all the meters are working properly. Power distribution companies need support of the law enforcing agencies as well as the judiciary in the removal of Kundas.

The second contentious issue is mounting receivables of both the electricity and gas distribution companies. Bulk of the receivables pertains to federal, provincial, and local governments. At times utilities feel helpless because supplies to these entities just cannot be disconnected. Even if any move is made courts issue stay orders but hardly any attempt is made to make it binding on the consumers to pay the outstanding dues. Some of the ethnic groups enjoying backing of political parties even go to the extent of creating serious law and order situation if utility companies disconnect supply to defaulters.

Electric utilities need to revamp their distribution networks to curb pilferage. Overhead distribution network has to be gradually replaced with underground cables. It is capital-intensive plan and cannot be undertaken without additional finances. As stated earlier containing T&D losses can improve the cash flow and arranging credit from commercial institutions can also help in completing the work expeditiously.

It was expected that with the privatization of KESC its financial condition would improve, however the experience is opposite. It may not be wrong to say that the new management just cannot clear the mess created while the entity was operating under state control. The legacy of nationalized era is still trying to prove that privatization of KESC was wrong and it should be nationalized once again. It may be true to the new management has not been successful in overcoming some of the contentious issues but it certainly deserves appreciation for undertaking investments for enhancing power generation and revamping transmission and distribution network.

Power generation from the state owned power plants has come down significantly in the last couple of years. This can be attributed to two factors 1) inappropriate maintenance and 2) less than required supply of furnace oil and gas, mainly due to poor cash flow. It was believed that issue of TFCs would resolve the issue but seems that the actual size of circular debt is much bigger, estimated around Rs400 billion contrary to government's claim of Rs200 billion.

To overcome the present shortfall the country should evolve multi pronged strategy energy conservation on top of the agenda. Since money has already been spent on generation/production reducing wastages and optimizing use can help the consumers in containing cost. One surprising point is that so far no effort has been made to keep lights of billboards off in the evenings. Similarly, domestic, commercial, and industrial consumers are hardly making any effort to conserve energy by switching off unnecessary lights.

Sector experts have been also hinting towards emerging shortage of gas and also suggesting multi pronged strategy. This included expediting exploration, importing gas through pipelines and establishing CNG storage and handing facilities. However, progress on all the fronts has been disappointing.

Future of Iran-Pakistan-India remains bleak due to mounting interference of US in Pakistan's internal affairs and pressure to abandon the project. Work on CNG storage and handing terminal is moving at snail's speed. Above all, despite new discoveries gas cannot be extracted due to ongoing litigation.

People having stake are soliciting development of alternative sources of energy i.e. solar and wind. It is true that Pakistan should also benefit from alternate sources but only after fully exploiting the conventional sources. The country is yet to benefit from billions of tons of coal and ethanol. While making any effort priority should always be given to indigenous resources.

Focusing on power generation from coal and enhancing ethanol can help in reducing oil import bill significantly and save people from the volatile movement of crude oil prices in the global markets. A lot has been written and talked about the benefits of construction of dams and hydel generation.

However, it seems that supporters of thermal power plants have prevailed against the supporters of dams capable of delivering the country irrigation water throughout the year and low cost hydel energy. When will we learn to protect the national interest?



IGI Stock Fund (IGISF), an open ended equity market fund of IGI Funds, has recently been awarded 5 star rating by PACRA. The rating signifies stellar performance, well rounded management and strict adherence to regulatory parameters.

The Mutual Fund Performance Ranking (Star Ranking) aims to distinguish funds based on their relative actual performance within a similar category of funds. In measuring performance, PACRA considers absolute monthly return and risk adjusted return measured through standard deviation.

Maheen Rahman, CEO of IGI Funds said, "We intend to continue with the philosophy of a strong portfolio of dividend yielding stocks, which are at a fundamental discount to the market. Our commitment remains the betterment of our unit holders. Therefore, risk mitigation will remain a prime objective alongwith high return generation".

At the end of FY09, IGISF posted a stellar performance. The fund registered a Month to Date return of 0.6% against a benchmark decline of (1.57%). Since inception, the fund has appreciated by 32.9% against a KSE-100 depreciation of (34.65%). IGISF was among the very few to announce a payout. The Fund treated its unit holders to a Cash Dividend of PKR 25.3111 (Bonus Issue of 23.5268 per 100 units). Presently, the fund has net assets of PKR ~500Mn.

IGI Funds Limited is a Group company of the IGI Financial Services and Packages Limited and provides Asset Management and Investment Advisory Services in conformity with the NBFC Rules, 2003.